I have a 4' x 3' section of outside wall below a window that's no longer flush and is pulling away from the window. Moisture is getting in apparently causing bulging and cracks in the stucco. A contractor insisted that the wall was plywood with stucco over it. I have drilled a hole in the wall and its looks more like plaster board (white powdery texture with a very thin layer of stucco applied. No wire mesh, no wood, and it doesn't appear to be cement board). Any idea what this is and what the correct replacement material would be? No vapor barrier is evident either. I assume I should add a vapor barrier too. What material should I use for this?

Thanks

Probably exterior gypsum board is what you have. For hardcoat stucco" I would use pt plywood covered with 30# felt, wire mesh and stucco. Could you use a piece of T111 style Hardie?